TaxTMI 
TaxTMI 
2012 (10) TMI 1057
X X X X Extracts X X X X
X X X X Extracts X X X X
....ling to Rs.l5.99 crores and Rs. 28.06 crores as on 31.3.2007 and 31.3.2008 respectively. The assessee, during the year, has incurred expenditure towards interest payment of Rs. 2.39 crores. The Assessing Officer noticed that he assessee has advanced huge amounts to one M/s. Agarwal Steel, a proprietary concern of one Shri L.N. Agarwal, who also happens to be a promoter of the assessee company. On examining the ledger account of M/s. Agarwal Steel, the Assessing Officer fond that the opening balance as on 1.4.2007 was Rs. 7,05,46,822 and it continued to remain in the same range till February, 2008, and it was only in the month of March, 2008, when the assessee booked some heavy purchases, which resulted in a credit balance of Rs. 2,68,623. Since no interest was charged by the assessee on the huge outstanding balance, the Assessing Officer asked the assessee to explain why proportionate interest should not be disallowed under S.36(l)(iii) of the Act. The assessee explained that M/s. Agarwal Steel is a dealer for M/s. Steel Authority of India Limited. During the year, the assessee purchased steel worth Rs. 30 crores from M/s.Agarwal Steel and the amount advanced to M/s. Agarwal Steel ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on that even assuming that the ratio of the decision of the Hon'ble Supreme Court in S.A. Builders Ltd, s case {supra) is applicable to trade advances, giving the advance of Rs. 7 crores, against average purchase of Rs. 2.50 crores per month is not a case of commercial expediency. The Assessing Officer observed that even taking a liberal approach, at best, an amount of Rs. 1 crore can be taken as advance given as normal trade practice, as bank rate of interest on the outstanding balance, the interest works out to Rs. 60 lakhs, and if Rs. 1 crore is treated a trade advance, on the balance, the interest chargeable works out to Rs. 40 lakhs, which was disallowed by the Assessing Officer udner section 36(l)(iii) of the Act. 5. The assessee challenged the above disallowance by filing an appeal before the CIT(A). Before the CIT(A), the assessee contended that the amount advanced to M/s. Agarwal Steel is in the nature of trade advance towards purchase of steel. The advance amount of Rs. 7 crores is also the opening balance as on 1.4.2007. In support of his contention, the assessee submitted the Balance Sheet, Profit & Loss Account, computation statement, the account statement of M/s.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on 36(l)(iii) of the Act. The CIT(A) however found, that the Assessing Officer has not given any basis as to why he has considered the figure of Rs. 1 crore for excluding the same towards advance given for purchase. The CIT(A), relying on the decision of the Hon'ble Supreme Court in the case of S.A. Builders Ltd. s case (supra), held that it is not for the Revenue to decide whether any advance is to be made or not and how much needs to be made, since that decision always remains with the business-man and has to be looked into in the business perspective. The Revenue can only examine the genuineness of the expenditure and also the fact as to whether the expenditure has been incurred for business purpose. The CIT(A) held that since there was business consideration between the parties and the advance made was towards purchases, the Assessing Officer cannot question the reasonable-ness of the amount advanced only because in Assessing Officer's view the profit disclosed for the year is low. On the aforesaid analysis, the CIT(A) held that the disallowance made under section 36(l)(iii) cannot be sustained. He accordingly deleted the addition made by the assessing officer on this a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n should incur for the purposes of business. The learned Authorised Representative for the assessee submitted that since the advance was in the nature of trade advance and was for the purchase of business, the matter is beyond the scope of the provisions of S.36( l)(iii) and therefore, the CIT(A) was justified in deleting the disallowance made by the Assessing Officer. In support of his contentions, learned Authorised Representative for the assessee relied upon the decision of the Hon'ble Supreme Court in the case of S.A. Builders Ltd. s case (supra). 10. We have heard rival submissions and perused the materials on record. It is an undisputed fact evident from the material on record that the assessee made purchases from time to time during the year from M/s. Agarwal Steel. It is mainly for the reason that M/s. Agarwal Steel is a proprietary concern of Shri L.N. Agarwal, one of the promoters of the assessee company, and other shareholders are also mainly from the family of Shri L.N. Agarwal, the Assessing Officer proceeded to infer that borrowed funds of the assessee have been advanced to M/s. Agarwal Steel, so as to facilitate drawal of funds by the promoter and the shareholde....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing on business is the best person to judge what expenditure is to be incurred in the best interests of business, keeping in view the commercial expediency. The Assessing Officer certainly can raise questions regarding the genuineness and reasonableness of the expenditure incurred. However, as long as there is nexus between the expenditure incurred and the business of the assessee, the Assessing Officer cannot step into the shoes of a businessman to say that the expenditure incurred is not required in the interests of the business. The Hon'ble Supreme Court in the case of S.A. Builders Ltd. 's case (supra) have observed in no uncertain terms that what is relevant is whether the amount advanced by an assessee is as a measure of commercial expediency and not from the point of view whether the amount was advanced for earning profit. Once the assessee establishes that there is nexus between the expenditure and the purpose of business, the Department will not be empowered to sit in judgment over the decision taken by the businessman to decide whether the expenditure incurred is correct or not. Merely on the ground that the profit declared by the assessee is low, one cannot draw ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....de. Since the payee is not a bank, the Assessing Officer disallowed the payment of Rs. 4,40,218 under S.40a(ia) of the Act. The assessee challenged the disallowance before the CIT(A). Before the CIT(A), it was argued by the assessee that since the amount paid towards instalment for hire purchase of vehicle, TDS provision was not applicable. The CIT(A) did not accept the contention of the assessee, by holding that since the payment made is in the nature of interest, TDS provision is applicable, and as the assessee failed to deduct tax at source, disallowance made in terms of S.40a(ia) cannot be held to be unsustainable. 17. The learned Authorised Representative for the assessee submitted before us that the amount paid to the financier towards instalment payment for hire purchase of vehicles. The learned Authorised Representative for the assessee submitted that since the payments made were in the nature of instalments, the TDS provisions as contained under S. 194A are not applicable. In this regard, the learned Authorised Representative for the assessee placed reliance on the decision of the Lucknow Bench of Income-tax Appellate Tribunal in the case of Commercial Motors Finance Ltd.....